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DECISION No. 1325/2004/QD-NHNN OF OCTOBER 15, 2004 PROMULGATING THE REGULATION ON CREDIT INSTITUTIONS’ DISCOUNT AND REDISCOUNT OF VALUABLE PAPERS FOR CLIENTS

THE STATE BANK GOVERNOR

Pursuant to December 12, 1997 Vietnam State Bank Law No. 01/1997/QH10 and June 17, 2003 Law No. 10/2003/QH11 Amending and Supplementing a Number of Articles of Vietnam State Bank Law;

Pursuant to December 12, 1997 Credit Institutions Law No. 02/1997/QH10 and June 15, 2004 Law No. 20/2004/QH11 Amending and Supplementing a Number of Articles of Credit Institutions Law;

Pursuant to the Government’s Decree No. 86/2002/ND-CP of November 5, 2002 defining the functions, tasks, powers and organizational structure of the ministries and ministerial-level agencies;

At the proposal of the director of the Monetary Policy Department,

DECIDES:

Article 1.- To promulgate together with this Decision the Regulation on credit institutions’ discount and rediscount of valuable papers for clients.

Article 2.- This Decision takes effect 15 days after its publication in the Official Gazette.

Article 3.- The heads of the units under the State Bank, the directors of the State Bank’s branches in the provinces or centrally-run cities, the chairmen of the managing boards and general directors (directors) of credit institutions shall have to implement this Decision.

For the State Bank Governor

Deputy Governor
PHUNG KHAC KE

REGULATION ON CREDIT INSTITUTIONS’ DISCOUNT AND REDISCOUNT OF VALUABLE PAPERS FOR CLIENTS

(Promulgated together with the State Bank Governor’s Decision No. 1325/2004/QD-NHNN of October 15, 2004)

Article 1.- Governing scope

This Regulation prescribes the credit institutions’ discount of valuable papers for their clients and rediscount of valuable papers among credit institutions.

This Regulation does not prescribe the discount and rediscount of commercial bills.

Article 2.- Subjects of application

1. Credit institutions established, operating and licensed to perform operations of discount and rediscount of valuable papers under the provisions of the Law on Credit Institutions. In case of discount or rediscount of foreign-currency valuable papers, credit institutions must have licenses for foreign exchange activities.

2. Clients who are owners of valuable papers discounted at credit institutions, including: Vietnamese organizations and individuals; foreign organizations and individuals currently living or operating in Vietnam; credit institutions.

3. Clients that are credit institutions owning valuable papers rediscounted at credit institutions.

Article 3.- Interpretation of terms

In this Regulation, the following terms are construed as follows:

1. Discount means credit institutions’ purchase of valuable papers which are immature for payment from clients.

2. Rediscount means credit institutions’ repurchase of valuable papers which are immature for payment and have been discounted by mode of definite purchase.

3. Remaining term of a valuable paper means the period of time counting from the date such valuable paper is discounted or rediscounted by the credit institution to its payment maturity date.

4. Discount or rediscount term means the period of time counting from the date valuable papers are discounted or rediscounted by credit institutions to the date the obliged clients fulfill their commitments to repurchase such valuable papers.

5. Discount or rediscount price means a sum of money paid by a credit institution to a client when performing the discount or rediscount.

Article 4.- Discount and rediscount principles

The discount and rediscount of valuable papers by credit institutions for clients must adhere to the following principles:

1. Compliance with the agreements between credit institutions and clients, which are compliant with the provisions of this Regulation, relevant law provisions and international practices;

2. Full and timely recovery of discounted or rediscounted amounts as well as valuable paper discount or discount interests by credit institutions, and strict compliance with Vietnam State Bank’s regulations on safety percentages;

3. Compliance with the Government’s regulations on foreign exchange management and Vietnam State Bank’s guidance, for the discount and rediscount of valuable papers denominated in foreign currencies.

Article 5.- Types of valuable papers eligible for discount and rediscount

Types of valuable paper which are chosen by credit institutions for discount or rediscount include:

1. Valuable papers issued by credit institutions under the Law on Credit Institutions and Vietnam State Bank’s guidance.

2. Bills issued by the State Bank according to Vietnam State Bank’s regulations.

3. Assorted bonds issued under the Government’s regulations and the Finance Ministry’s guidance, including treasury bills and bonds, central works’ bonds, investment bonds, foreign-currency bonds, public bonds for national construction, Government-underwritten bonds and local administrations’ bonds.

4. Bills, promissory notes and bonds issued by other organizations and eligible for discount and discount according to law provisions.

Article 6.- Conditions for valuable papers to be discounted or rediscounted

Valuable papers shall be accepted by credit institutions for discount or rediscount when they fully meet the following conditions:

1. They are under clients’ lawful ownership;

2. They are immature for payment;

3. They are permitted for transactions (purchase, sale, donation, conversion, transfer, pledge, guarantee and other lawful transactions);

4. They are paid according to issuing organizations’ regulations.

Article 7.- Discount and rediscount currencies

1. For valuable papers denominated in Vietnam dong, credit institutions shall make discount or rediscount thereof in Vietnam dong.

2. For valuable papers denominated in foreign currencies, credit institutions shall make discount or rediscount thereof as follows:

a/ Such valuable papers shall be discounted or rediscounted in foreign currencies in which they are denominated;

b/ The discount or rediscount in Vietnam dong shall be agreed upon by the involved parties in compliance with Vietnam State Bank’s regulations on exchange rates applicable to credit institutions licensed for foreign exchange business.

Article 8.- Discount and rediscount modes

Credit institutions and clients shall agree upon and select the following discount or rediscount modes:

1. Discount or rediscount of the whole remaining term of valuable papers, which is the mode whereby valuable papers are definitely purchased at discount or rediscount prices and their ownership is immediately transferred from clients to credit institutions. When such valuable papers become mature for payment, the credit institutions shall produce them to issuing organizations for payment.

2. Discount or rediscount for a fixed term:

a/ Credit institutions shall purchase valuable papers for discount or rediscount terms and at discount or rediscount prices, which are accompanied by clients’ commitments to repurchase such valuable papers on the expiry date of discount or rediscount.

b/ In cases where clients fail to repurchase valuable papers when the discount or rediscount term expires, credit institutions shall become the lawful owners of, and enjoy all interests arising from, such valuable papers.

Article 9.- Discount or rediscount terms, prices and interest rates

1. Discount or rediscount terms shall be agreed upon by credit institutions and clients but must not exceed the remaining terms of valuable papers.

2. Discount or rediscount prices shall be agreed upon by credit institutions and clients but must be compliant with the principles prescribed in Article 4 of this Regulation. Main factors for considering and agreeing on discount or rediscount prices are values of valuable papers when they are mature for payment, discount or rediscount interest rates as well as remaining terms of valuable papers.

3. Discount or rediscount interest rates shall be agreed upon by credit institutions and clients

Article 10.- Discount or rediscount level for a client

The maximum discount or rediscount level for a client shall be equal to 15% of a credit institution’s own capital. For foreign banks’ branches operating in Vietnam, this level shall be equal to 15% of their parent banks’ own capital.

Article 11.- Discount or rediscount procedures

1. When wishing to have their valuable papers discounted or rediscounted, clients shall send discount or rediscount requests and their valuable papers to credit institutions. Clients shall be held responsible before law for the lawfulness and validity of valuable papers to be discounted or rediscounted at credit institutions.

2. Credit institutions shall examine the conditions for valuable papers to be discounted or rediscounted. In case of necessity, credit institutions may request clients to send papers proving the satisfaction of discount or rediscount conditions prescribed in Article 6 of this Regulation.

3. When credit institutions agree to undertake the discount or rediscount, clients shall promptly hand over their valuable papers and concurrently carry out the procedures for transferring their ownership over such valuable papers to credit institutions:

a/ For valuable papers issued in form of bearer certificates, clients shall personally hand over such valuable papers to credit institutions accepting to discount or rediscount them.

b/ For valuable papers issued in form of registered certificates, clients shall hand over certificates and concurrently carry out the procedures for transferring ownership over such valuable papers to credit institutions accepting to discount or rediscount them according to law provisions and issuing organizations’ regulations.

c/ For valuable papers issued in form of book entries, clients shall hand over ownership certificates and concurrently carry out the procedures for transferring ownership over such valuable papers to credit institutions accepting to discount or rediscount them according to law provisions and issuing organizations’ regulations.

d/ For valuable papers put in custody at organizations licensed for custody according to law provisions, credit institutions and clients may authorize such custody organizations to carry out the procedures for transferring valuable papers and ownership thereover from clients to credit institutions.

4. Agreements on discount or rediscount between credit institutions and clients must be made in writing, with their contents compliant with the provisions of this Regulations, other relevant law provisions and model contracts promulgated by Vietnam Association of Banks.

5. For termed discounts or rediscounts, when clients fulfill their obligations to repurchase valuable papers, credit institutions shall transfer valuable papers and ownership thereover to clients according to the transferring procedures prescribed in Clause 3 of this Article.

Article 12.- Categorization, deduction for reserve and handling of risks incurred to discount and rediscount amounts

Credit institutions shall categorize, deduct for reserve and handle risks incurred to discount and rediscount amounts according to Vietnam State Bank’s regulations on categorization of “credit” assets, deductions for setting up reserves, and handling of risks in banking activities of credit institutions.

Article 13.- Handling of violations

Credit institutions and clients shall request compensations for damage, exercise the right to claim, to lodge complaints or denunciations against violators, if so agreed by the involved parties or prescribed by law.

Article 14.- Organization of implementation

1. Credit institutions and clients wishing to have their valuable papers discounted or rediscounted at credit institutions shall have to implement this Decision.

2. Basing themselves on this Regulation, relevant law provisions and international practices, credit institutions shall promulgate procedures for performing operations of discounting or rediscounting valuable papers suitable to their conditions and characteristics and compliant with their charters.

3. The amendment and supplementation of this Regulation shall be decided by the State Bank Governor.

For the State Bank Governor

Deputy Governor
PHUNG KHAC KE